State pension: Experts warn that inflation figures could put triple lock under threat

State pension: Experts warn that inflation figures could put triple lock under threat

State pension payments can be paid to anyone who has at least 10 years of National Insurance contributions and has reached state pension age. Current triple lock rules ensure that the payments will rise every year but some detail that the systems stability could come under threat.

Recently, the latest inflation figures revealed that the Consumer Prices Index (CPI) 12-month rate was 0.8 percent in April 2020, down from 1.5 percent in March.

When these figures were released they came under intense scrutiny as they were the first to be released post lockdown.

Steve Cameron, a Pensions Director at Aegon, commented on how the figures, while being unsurprising, illuminated how the economy is reacting to a world dominated by coronavirus: “Today’s figures were not unexpected, but all eyes will be on the continuing trend as the impact of the coronavirus tightens its squeeze on the economy.

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“Under current rules, the state pension is increased by the highest of earnings growth, price inflation or 2.5 percent a year. However with likely dramatic changes and significant variability in both price inflation and earnings growth in the coming months, there is a question over whether the Government will see it as both fair and affordable to guarantee state pension increases of at least 2.5 percent a year”

While it’s not possible to predict the future, there is a real risk that disinflation could continue, especially if coronavirus continues to impact the economy.

Anna Murdock, the Head of Wealth Planning at JM Finn, also commented on the added pressure this will put on triple lock rules, highlighting the need for affective private pension arrangements: “Disinflation poses a risk to those approaching retirement, as the cost of buying an annuity is likely to become even greater in a low inflation, low interest rate environment.

“A more worrying risk if this trend prevails for those embarking on later life is that low inflation also means added pressure to the triple-lock on the State Pension.

“Under the current system the provision increases by the highest of growth in wages, inflation as measured by the Consumer Prices Index (CPI) or 2.5 percent.

“Due to the triple lock guarantee, the government is obliged to offer a 2.5 percent increase even when inflation and wage growth is lower than this.

“This highlights the importance of having your own pension provision if the Government opts to remove the triple-lock on the State Pension to recoup some of the costs of the current lockdown.”

Published at Sat, 30 May 2020 03:00:00 +0000